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Krishan Varma
Having hands on experience in relationship management with a demonstrated history of worki... Having hands on experience in relationship management with a demonstrated history of working with the Banks/NBFCs/Leading Brokerages house etc. Thus, having adequate knowledge of the Indian capital market where we acquire the retail/HNI clients for the MF SIPs/Lump Sum, F&O, Insurance, PMS and help them to make their future life wealthy. Read more
Summary
A Business Analysis
OVERVIEW OF THE GLOBAL CHEMICALS INDUSTRY
Value of the global chemical industry
In calendar year 2021, the global chemicals market was valued at approximately US$5,334 billion, with China accounting for a substantial market share (39%), followed by the European Union (15%) and the United States (13%). In calendar year 2020, India accounted for an approximately 4% market share in the global chemicals market. According to the Company Commissioned F&S Report, the global chemicals market is expected to grow at a CAGR of 3.6% from US$5,334 billion in calendar year 2021 to reach US$6,143 billion by calendar year
2025. According to the Company Commissioned F&S Report, from calendar years 2022 to 2025, the Asia Pacific (APAC) chemicals market is expected to grow at the fastest rate of 5-6%, while the chemicals markets in Western Europe, North America, and Japan are expected to grow at a slower rate of 2-3% since they are relatively mature.
According to the Company Commissioned F&S Report, the BRIC countries (Brazil, Russia, India, China and South Africa) accounted for approximately 47% of the global chemical sales in 2021.
Type of chemicals
Chemicals may be categorized into three broad categories: commodity chemicals, specialty chemicals and others.
Global specialty chemicals market
Value of the global specialty chemicals market:
Specialty chemicals are low-volume and high-value products which are sold on the basis of their quality or utility, rather than composition. Thus, they may be used primarily as additives or to provide a specific attribute to the end products. The focus is on value addition to the end products and the properties or technical specifications of the specialty chemicals.
Rapid industrialisation in India and China is expected to drive demand for specialty chemicals. Asia Pacific (APAC) dominated the global specialty chemicals market in calendar year 2020 with a 42.0% market share, owing to its huge customer base, increasing industrial production and robust growth of the construction sector in the region. APAC is followed by Europe and North America, with a 23.9% and 20.9% market share in calendar year 2020, respectively.
Global specialty chemicals market by segments
Specialty chemicals industry can be categorised into a mix of end-use driven segments and application-driven segments. The various segments across specialty chemicals industry differ in competitive intensity, margin profiles, defensibility against raw material cost movements and growth.
According to the Company Commissioned F&S Report, in calendar year 2021, the global specialty chemicals industry is valued at US$674 billion. Agrochemicals & fertilizers made up the largest segment of the industry, accounting for approximately 31% of the global specialty chemicals industry in calendar year 2021.
OVERVIEW OF THE CHEMICALS INDUSTRY IN INDIA
Value of the Indian chemicals industry
According to the Company Commissioned F&S Report, in calendar year 2021, the Indian chemicals industry was valued at US$178 billion, representing approximately 3-4% of the value of the global chemicals industry. According to the Company Commissioned F&S Report, the value of the Indian chemicals industry is expected to grow at a CAGR of 9.3% from US$178 billion in 2021 to US$300 billion in 2025. According to the Company Commissioned F&S Report, in fiscal 2020, the Indian chemical industry contributed approximately 6.6% of the
national gross domestic product and accounted for 15-17% of value of the India’s manufacturing sector.
The value of the commodity chemicals segment and the specialty chemicals segment accounted for approximately 50% and 41% of the Indian chemicals industry, respectively. The growth rate of the Indian specialty chemicals segment in 2015-2020 was higher than the growth rate of the Indian commodity chemicals (10.4% vs. 8.7%). From 2021 to 2025, the Indian specialty chemicals segment is expected to grow at a CAGR of 12%.
Region-wise Specialty Chemicals Growth, 2021-25, %
Indian specialty chemicals market by segments
Similar to the global specialty chemicals industry, the Indian specialty chemicals industry can be categorised into a mix of end-use driven segments and application-driven segments.
High barriers to entry in the Indian Specialty chemicals industry
Involvement of complex chemistries in the manufacturing of products: The production process of specialty chemicals is complex and requires high level of technical knowledge and R&D capabilities. Companies need to invest substantially in facilities (such as research and development centres) as well as technical knowledge and training, creating barrier to entry for new entrants.
Rigorous product approval standard: Specialty chemicals products are subject to very sensitive and rigorous product approval systems with stringent impurity specifications. Intermediates that are used for API drugs are subject to an even more stringent quality and manufacturing process requirements. Typically, approval of any such product takes a few years. The costs and time involved create high barriers to entry to new entrants in the industry.
Long-term relationship between suppliers and customers: Suppliers of specialty chemicals usually enjoy long-term relationship with customers. This is partially due to the high costs involved in switching to new suppliers. Customers typically select suppliers after carefully reviewing them and tend to develop long-term relationships with them as well as limit the number of such suppliers.
Other factors contributing to the high barriers to entry for specialty chemicals companies, API and drug intermediates manufacturers include stringent quality requirement (specifically those for human consumption), lengthy and costly registration process, high level of product customization, differentiated business models, among others.
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About Archen Chemical
Archean Chemical Industries Limited is India's largest exporter of bromine and industrial salt in Fiscal 2021. The company is the leading speciality marine chemical manufacturer in India and is focused on producing and exporting bromine, industrial salt, and sulphate of potash to customers around the world.
Archean Chemical Industries markets theproducts to 18 global customers in 13 countries and to 24 domestic customers. The company was the largest exporter of industrial salt in India with exports of 2.7 million MT in Fiscal 2021.
Archean Chemical Industries Limited are the largest exporter of Bromine from India. The company is the only manufacturer of sulphate potash in India. The company's marine chemicals business is predominately conducted on a business-to-business basis both in India and internationally.
The company has an integrated production facility for the bromine, industrial salt, and sulphate of potash operations, located at Hajipir, Gujarat, located on the northern edge of the Rann of Kutch brine fields.
Business Overview
The company is a leading specialty marine chemical manufacturer in India and focused on producing and exporting bromine, industrial salt, and sulphate of potash to customers around the world. (Source: Company Commissioned F&S Report). According to Frost & Sullivan, we are the largest exporter of bromine and industrial salt by volume in India in Fiscal 2021 and have amongst the lowest cost of production globally in both bromine and industrial salt. (Source: Company Commissioned F&S Report). We produce our products from our brine reserves in the Rann of Kutch, located on the coast of Gujarat, and we manufacture our products at our facility near Hajipir in Gujarat. As of June 30, 2022, we marketed our products to 18 global customers in 13 countries and to 24 domestic customers. Our bromine is used as key initial level materials, which have applications in the pharmaceuticals, agrochemicals, water treatment, flame retardant, additives, oil & gas and energy storage batteries. Industrial salt is an important raw material used in chemical industry for production of sodium carbonate (soda ash), caustic soda, hydrochloric acid, chlorine, bleaching powders, chlorates, sodium sulphate (salt cake) and sodium metal.
Sulphate of potash is used as a fertilizer and also has medical uses. In the three months ended June 30, 2022 and in Fiscal 2022, Fiscal 2021 and Fiscal 2020, our sales of bromine constituted 50.94%, 53.54%, 46.49% and 35.43%, respectively, of our revenue from operations, our sales of industrial salt constituted 48.98%, 45.37%, 49.10% and 57.88%, respectively, of our revenue from operations and our sales of sulphate of potash constituted 0.06%, 1.01%, 4.39% and 6.55%, respectively, of our revenue from operations.
The marine chemicals business is predominately conducted on a business-to-business basis both in India and internationally. The company is an export-oriented business, and, in the three months ended June 30, 2022 and in Fiscal2022, Fiscal 2021 and Fiscal 2020, 66.74%, 70.32%, 74.41% and 78.41%, respectively, of their revenue from operations were attributed to export sales. The key geographies to which we export their products include China, Japan, South Korea, Qatar, Belgium and the Netherlands. Some of their major customers include Sojitz Corporation, which is also a shareholder in their Company, Shandong Tianyi Chemical Corporation, Unibrom Corporation, Wanhau Chemicals and Qatar Vinyl Company Limited.
Business at a glance
Attributes behind strong foundation
Company's product portfolio
Performance Trend
Manufacturing Facility
Established Infrastructure
Archean use brine from own reservoirs as raw material which include Industrial Salt, kainite and end bittern. Other raw materials are primarily sourced from third-party suppliers in India
* Globally, two most popular Bromine production sites are near the Dead Sea (Israel & Jordan) and the underground well in Arkansas region in the USA
* India is well placed with brine resources at the Great Rann of Kutch in Gujarat
Location Advantages
The manufacturing facility is located in close proximity to the Jakhau Jetty and Mundra Port. The Jakhau Jetty is a fair-weather facility,
operating for seven to eight months a year from October to May
* It has a designed capacity of 5 million MT per annum and a capacity to load 28,000 MT equipped with a twin conveyor system, diesel
generator sets
* An integrated manufacturing site with access to the Rann of Kutch reserves and a close connectivity to ports, results in production
process efficiency, deliver superior quality and timely products
Company's major clientele
Enduring customer relationships helped to expand product offerings and geographic reach
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Strengths of the company
Leading market position, expansion and growth in bromine and industrial salt:
The company is a leading specialty marine chemical manufacturer in India since 2013. According to Frost & Sullivan, they are the largest exporter of bromine and industrial salt by volume in India in Fiscal 2021 and have amongst the lowest cost of production globally in both bromine and industrial salt. Company attribute their strong market position to factors such as their long-standing relationship with global customers, company is established infrastructure and access to brine reserves at the Rann of Kutch, their manufacturing facility close proximity to the captive Jakhau Jetty and Mundra Port and consistent delivery of high-quality products. Company's leadership position and low cost-production offers them competitive advantages such as product pricing, economies of scale, and the ability to scale their business, increase customer loyalty and expand their client base, all of which have in turn resulted in the growth of revenues and EBITDA in the last three fiscal years.
The table set forth below sets out our market position in India and globally for each of our products for the periods indicated.
The company is command a leadership position in Indian bromine merchant sales (traded bromine in the market) by volume in Fiscal 2021, and we are the largest exporter of Bromine from India by volume in Fiscal 2021. According to Frost & Sullivan, the bromine global market size was US$3.13 billion in CY2021, and the market is expected to grow at a CAGR of 5.8% between CY2020 and CY2025. Frost & Sullivan anticipates a growing demand for bromine and bromine derivative performance products driven by a host of factors including an increasing demand for flame retardants, increasing consumption of oil well chemicals and increasing use of hydrogen bromide in flow batteries.
High entry barriers in the specialty marine chemicals industry
The specialty marine chemicals industry in which we operate has high entry barriers, which include the high cost and intricacy of product development, manufacture, and investment in salt beds, the limited availability of raw materials necessary for production, the limited number of locations with a suitable climate and access to reserves, and the lead time and expenditure required for research and development and building customer confidence and relationships, which can only be achieved through a long gestation period.
Given the nature of the application of their products and the processes involved, their products are subject to, and measured against, high quality standards and sensitive and rigorous product approval systems with stringent impurity specifications. Further, because end products manufactured by their customers are typically subject to stringent regulatory and industry standards, any change in the vendor of the products may require significant time and expense for customers, which acts an entry barrier and disincentives any such change. Thus, customer acquisition is difficult and limits the number of competitors involved in the manufacturing of their products. According to Frost & Sullivan, the company have cultivated strong relationships with its customers over the years, established a strategic and successful integrated manufacturing facility, and has proven to be a reputable producer with a track record of providing high quality products that is difficult to replicate.
Established infrastructure and integrated production with cost efficiencies
Capex Plan
Financial Performance
Balance Sheet
Cash Flow
Risk
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